essays pieces of the puzzle
Tuesday, July 3rd, 2012
lots of choices

Above please find the performance of some of the core ETFs for the U.S. fixed income market during the first half of the year.

Being long Treasuries (TLT) got you the most excitement; they were down hard in the first quarter and snapped back strongly in the second quarter, finishing right near the top of this group of ETFs.  Short-dated Treasuries (SHY) provided neither excitement nor yield, as expected.  Mortgage-backed securities (MBB) were pretty steady as well, with a bit more income.  Inflation-protected Treasuries (really, CPI-protected securities, here measured by TIP) posted respectable returns.

Credit did well, with high yield (HYG) having the best performance of all of these vehicles, on the back of a very strong June.  Investment grade bonds (LQD) also provided good returns.

Municipal bonds (MUB) were interesting, in that they did so much better than everything else at the start of the year, while Treasuries were struggling.  Munis were acting more like “risk on” assets than safe ones during that time.

What will the impact of higher rates be on these various categories of bonds — when they finally arrive?  (OK, if.)  There are likely to be some big surprises across the spectrum of fixed income instruments, given the very strong cash flows of the last few years into many of them.

A side note:  I realized after the fact that every single one of these high-profile offerings is from iShares.  That’s amazing.  (Chart:  Bloomberg terminal.)

This is the third in a series of postings that looks at the performance of popular ETFs during the first half.  #1 ~ Asset classes: SPY, VEU, AGG, and DBC.  #2 ~ Commodities:  GLD, OIL, CORN, JJC, and DBC.  Next up, equities.

celebrating independence

Three years ago today, I wrote a posting about celebrating independence.  It is one of my favorites, at once a recollection of a great woman, a testament to the American spirit, and an examination of what “independence” should mean in the world of investment services.